Question ID :
HOW TO ACCOUNT IPO EXPENDITURE IN BOOKS OF ACCOUNTS AS PER IND AS?
Answer ID :
NAVEEN K S
May 01, 2022
Companies Act, 2013
Share issue expenditure is ideally written-off to profit and loss account in the year it is
incurred, unless there is a reason to expect benefit to be derived in the years to come.
If the management is in a position to determine the benefit derived out of such
expenditure, it can be carried forward to be written-off over the period in which such a
benefit is expected be derived.
In case a company raises equity to redeem existing preference share capital, the
benefit cannot be expected to be determinable over a reasonable period of time. In
such a situation, share issue expenses are to be expensed out through the profit and
loss account in the year in which the expenditure is incurred.
But, if the issue is made to finance a project, the benefit out of the share issue
expenditure is deferred to a reasonable period when the project is commissioned. Such
a situation warrants the expenditure be carried in the balance sheet till it is written
Disclosure in financial statements
As this item is not preliminary expenditure within the meaning of the Companies Act,
it would be improper to disclose it as such. In case it is not expensed out through the
profit and loss account, the expenditure is to be carried in the balance sheet.
A guidance note of the ICAI requires such expenditure to be disclosed as a separate
head under “Miscellaneous expenditure to the extent not written off”.
It was held that share issue expenses are capital for income-tax purposes. As a result,
it is not deductible from profits. The only exception can be inferred from a reading of
Sec.35D of the Income Tax Act, dealing with amortising of preliminary expenses. If the
issue is made to finance a project, share issue expenditure constitutes preliminary
expenditure for the purposes of this section. Therefore, such expenditure, subject to
the limits specified under this section, can be amortised over a period of five years
commencing from the year in which the project starts generating income.
ASHISH TULSHYAN on
May 05, 2022